Sticker Shock

Parents of today’s college students may have had to walk six miles uphill to school -- both ways, of course -- but they had it good when it came to investing in a college education.

As tuition prices have skyrocketed since the 1970s, the inflation adjusted average earnings of a graduate from a four-year institution have stayed about the same, according to Susan Dynarski, associate professor of public policy at Harvard University and research fellow at the National Bureau of Economic Research. Compared to 30 years ago, students are “looking at level earnings, but increasing debt," she says, so "from the perspective of their parents’s generation, they’re actually worse off.”

Dynarski and other panelists at an American Enterprise Institute panel titled “Is College Still Worth the Cost?” expressed concern that, faced with shocking tuition “sticker prices” and years of debt, the students most in need of college are too often simply turning away. Meanwhile, the average income of students who don’t get a bachelor’s degree is declining. “It’s becoming worse and worse not to be a college graduate,” Dynarski said. She added that, in an increasingly knowledge-based economy, the adjusted income of men who do not complete high school is about $20,000 per year, or half of what it was about 30 years ago. “It’s a terrible time to be a high school dropout,” Dynarski said.

Though the panelists agreed that, on average, a person with a college degree makes about $1 million more over their career than someone without a degree, the wisdom of making the investment in college is far from a foregone conclusion for many students.

Anya Kamenetz, author of Generation Debt: Why Now is a Terrible Time to be Young,[1] said that of the three main parties involved in financing postsecondary education -- private lenders, the federal government, and students -- students face by far the greatest risk. The government guarantees 98 percent of loans, and a specific rate of return, making the student-loan business extremely profitable and relatively low risk. The government, Kamenetz said, has an easy time collecting on its loans, so also runs a lower risk than the student. “The student’s risk is huge,” Kamenetz said. “They risk not finishing, and even if they do, they risk not having the income they expected. One million dollars more … on average, but averages aren’t people.”

Kamenetz added that those students who can least afford not to graduate are also those who are most likely not to graduate, because they work while taking classes. “It interferes with their campus engagement,” she said.

The United States spends more money -- as a percentage of the gross domestic product -- per student on higher education than any other country, and yet the average debt continues to grow, according to Kamenetz.

The panelists considered how all that money might be better spent. The Education Policy Institute released its “Global Debt Patterns” report[2] last year, which examined the student loan policies of some first-world nations. Some countries allow students to defer loan payments until their income reaches a certain level. The report concluded that the interest rate of a loan is perhaps the most important factor for students deciding whether to borrow. Graduates in New Zealand, Canada and the United States, the report found, “face punishing rates of interest during the repayment period.” The report adds that those three countries could ease student debt burdens, at little cost, by imitating some European countries and Australia: give students a single, low-interest rate for the life of the loan, rather than subsidizing the loan while students are in college, and then hitting them with big bills as soon as they get out.

Martha Lamkin, president of the Lumina Foundation for Education, which seeks to get more students from underrepresented groups into college, said that the biggest concern she hears from parents these days is that students won’t graduate in four years.

The more years a student spends in college, Dynarski noted, the more years they pay for college, and the more years they probably aren’t earning all they could in the work force.

Dynarski cited statistics from the College Board showing that 74 percent of students with top math scores who are from the top quintile of family income get a bachelor’s degree, while only 29 percent of students with top math scores who are from the bottom quintile of the income scale do the same. “Money is counting,” she said. “This shows that even kids with good skills, if they happen to be from families with low income, are not getting through college. Something is going on; price might be going on.”

She said that the government needs to make it easier for students to apply for financial aid so they aren’t deterred by the sticker price. It’s like a car lot, she said: “Nobody pays [the dealer’s price], unless they’re a rube.” She said that one way to simplify financial aid -- the FAFSA form has more than 100 questions -- would be to “run it through the tax system … with about three or four questions on the 1040, you can replicate 80 percent of the [information] on the Pell Grant.

Dynarski added that many public institutions, which are subsidized by their state governments, have less money for students in need because their in-state tuition is lower than the actual cost of educating a student.

More states, Dynarski said, should consider programs like Georgia’s HOPE Scholarship, which pays tuition at a public institution for any Georgia student with at least a B average. The FAFSA, she said, is too complex, and “a simple message could be worth it … even if you give a bit more money to richer kids.”